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magazineMore to come from Warpaint after 80%+ rally
Shares in lipstick and eyeliner seller Warpaint (W7L: AIM) have increased by more than 80% this year to 247.59p as investors wake up to its growth potential.
The business, which floated on AIM in November 2016, last week delivered maiden full year results ahead of expectations.
Sales increased by 21.1% in 2016 to £27m and adjusted pre-tax profit grew by 24.1% to £6.7m.
The figures prompted stockbroker Stockdale to raises its 12 month share price target by a very impressive 76% to 300p.
Warpaint sells a wide range of cosmetics including eyeshadow and nail polish through its main brand W7. Its close-out business also buys and sells excess stock of branded cosmetics such
as Max Factor.
It targets discounter retailers such as TK Maxx, B&M (BME) and The Perfume Shop.
While Warpaint is enjoying success with W7, it intends develop its other four brands, Outdoor Girl, CopyCat, Smooch and Taxi that target beauty retailers, department stores and the value sector.
The cosmetics firm also wants to diversify its product range by selling popular accessories such as make-up bags.
The company has a strategy to roll out products through selected stores abroad. It hopes to use trade shows to increase its presence in various export markets such as the Middle East, Africa, Southern and Eastern Europe.
In particular, Stockdale analyst Robert Sanders is encouraged by Warpaint’s potential to gain sales traction in the two biggest markets for cosmetics, being the US and China.
According to data from Mintel, the US colour cosmetics market is the largest with a retail value in 2015 estimated at $11bn. That is nearly three times the size of the second largest market China at $3.9bn.
On the downside, the analyst warns that Warpaint needs to continually deliver innovative products.
He says: ‘The key to the W7 success is spotting trends in cosmetic colourways or new products and then quickly launching a W7 offering at a value price point.’
The company is clearly not sitting on its hands. For example, a new range called Very Vegan will be launched by June, being products specifically developed for vegans. Warpaint believes this range has great potential for growth.
Stockdale forecasts Warpaint will generate 9.4p earnings per share in 2017, rising to 11.9p in 2018 and 15p in 2019. That implies a price to earnings ratio of 26.3 falling to 16.5 times within two years.
We said to buy at the IPO at 97p last November and still see further share price upside. Keep buying.
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